Sales and pricing practices that are likely to mislead consumers are deceptive under Section 5 of the FTC Act. They are also a violation of state deceptive practices statues and other state laws, including the Uniform Commercial Code. For instance, in bait and switch cases, a violation occurs when the offer to sell the product is not a bona-fide offer.
Misrepresenting the initial purpose of the contact with the customer, sending and seeking payment for un-ordered merchandise, artificial or fake pricing, pyramid sales schemes (which I discuss separately), high pressure sales tactics accompanied by a misrepresentation, failure to provide promised services or meeting warranty obligations have all been considered as deceptive sales practices by the FTC.
You should understand common marketing and sales practices in the context of Internet sales. Here are some basic rules/guidelines common under both FTC and state consumer protection laws and apply to both goods and services (i.e. “products”) unless otherwise stated.
1. Bait and Switch Advertisements
According to the FTC, it is illegal to advertise a product when the company has no intention of selling that item, but instead plans to sell a consumer another product. The FTC has issued Guides Against Bait Advertising, which you should review. In addition, bait and switch type advertising is illegal under state deceptive practices laws as well.
2. “Free” Claims and Rebate Offers
When a “free” offer is tied to the purchase of another product, the price of the purchased product should not be increased from its regular price. If you’re advertising a product as “free” or offering it at a low cost with the purchase of another item, the advertisement should clearly and conspicuously disclose the terms and conditions of the offer. According to the FTC, you should disclose the most important information, like the terms affecting the cost of the offer, near the advertised price. (The FTC has published a guide called “Big Print. Little Print. What’s the Deal?” regarding using the word “free” in advertising).
If you use an advertisement that includes rebate promotions, you should prominently state the before-rebate cost, as well as the amount of the rebate. Any rebate promotions also should clearly disclose any additional terms and conditions that consumers would need to know, including the key terms of any purchase requirements, additional fees, and when consumers can expect to receive their rebate.
3. Deceptive Pricing
The same standards and guidelines apply regarding truthfulness and deception to claims about price comparisons, “sale” prices, and similar types of pricing ads, such as two-for-one deals. The FTC has issued “Guides against Deceptive Pricing” which you should really review for more information. For starters, your business cannot charge more than the advertised price for a product. Also, advertising that products are falsely on sale or that a price is reduced or offered for a limited time only when this is untrue is considered deceptive by the FTC and under state deception laws. You should avoid these practices at all costs. You shouldn’t misrepresent the price of anything you sell or the nature of any sale in any way, or you run the risk of deception. You should also fully disclose any policy on lay away plans, including cancellation and return of payments already made. Do not change the price of anything you sell by increasing payments or by substituting lower priced goods. Talk to your Internet lawyer about these local laws and how they may apply to your business.
4. “New” Claims
There are different rules governing your use of the word new in advertisements based on different products, like textiles, clothing and tires. General principles of avoiding deception and being truthful apply any time you use the word new to describe a product. You can’t say something is new or a part of it is new if it isn’t. For example, if part of the product is not new or comes from recycled materials, then you should disclose this prominently on your website. You also cannot misrepresent the extent of the previous use and need to clearly and conspicuously disclose whether the products or parts for sale are used, or contain used, rebuilt, reconditioned, or re-manufactured parts under most state laws.
5. Dry Testing a Product
If you plan to test the response of potential customers by advertising a product you may never sell, you need to clearly disclose that the product does not yet exist. Again, you cannot mislead people into thinking the advertisement is for an existing, actual product. In addition, if the product is never manufactured, consumers who ordered it must be notified within four months of the original ad or mailing, and they must be given the opportunity to cancel their order without obligation.
6. Referral Sales
Referral sales are illegal in all states. A “referral sale” is typically offering to provide a customer a prize, discount, rebate or other compensation as an inducement to provide other prospects to the seller which compensation is contingent upon a sale to one of the referrals. You should not make any references to “referral sales” or “referral marketing, or to offer incentives contingent upon the successful sale or enrollment of any person referred by participants in the MLM opportunity.
Stay tuned for my next few posts which will continue to discuss e-commerce sales practices liability (deceptive pricing, billing, refunds and shipping liability).